Sequoia has initiated coverage on DroneShield (ASXRO), spotlighting the company’s potential amid a rapidly evolving market for counter-drone technology.
Founded in 2014 and listed on the ASX in 2016, Droneshield is a $1.5bn market-capped company that stands at the forefront of this industry, capitalising on the growing global need for advanced solutions in the face of escalating conflicts and security threats.
Drones and counter-drone systems have become indispensable in modern warfare and security operations worldwide.
From the conflict in Ukraine to the war in Palestine, the use of drones is widespread, demonstrating the urgent need for effective countermeasures.
DroneShield, which provides these essential systems, is not only addressing defence needs but also expanding into civilian sectors such as airports, critical infrastructure and stadiums.
This diversification positions the company for substantial growth across various markets, says Sequoia.
A quick look at DroneShield’s technology
DroneShield’s product suite includes cutting-edge solutions for detecting and neutralising drones. The company is recognised as a pioneer in counter-unmanned aerial systems or C-UAS technology.
C-UAS is a term that includes the detection, tracking, and disruption of the enemy’s systems.
DRO employs radio-frequency methods to passively identify drones, while its smart jamming technology disrupts drones without physical damage, causing them to safely land.
“Smart jamming involves sending sophisticated blocking capabilities to disrupt or disable enemy communication systems, radar, or other electronic devices,” said Sequoia.
DRO’s products include the DroneGun Mk4, a rugged, handheld C-UAS effector providing users with a compact, rapid response countermeasure capability. The DroneGun Mk4 can disrupt the control, navigation and video of multiple drones simultaneously.
Another product is the DroneSentry-X Mk2, a device designed to be deployed in harsh environments and which can be mounted to standard vehicle roof racks, on military vehicles, surface vessels, and unmanned mobile platforms.
Droneshield’s other sources of revenues include software updates for its C-UAS devices.
“These (the updates) enhance detection responsiveness, reduces false positives, and accelerate the detection, classification, and tracking of new threats by DRO’s systems,” said Sequoia.
It’s not all about defence
The demand for C-UAS technologies has grown across industries as easily accessible drones pose a risk by evading conventional security measures, endangering public safety.
“While initially focused on military and law-enforcement sectors, the expanding threat landscape underscores the need to protect airports, critical infrastructure, and crowded public venues from unauthorised drone incursions,” said Sequoia.
DroneShield now operates in various civil areas beyond defence.
In civilian airports, DroneShield’s technology helps enhance security by detecting and disrupting drones that come too close to aircraft or restricted areas. This is especially crucial given the increase in drone activities around airports, which can pose serious safety risks.
The company’s systems are also applied to critical infrastructure.
As drones become more common, they present both opportunities and threats. DroneShield’s solutions protect infrastructure by detecting and neutralising unauthorised drones that could potentially disrupt services or compromise security.
In prisons, DroneShield’s technology addresses the challenge of smuggling contraband via drones.
By integrating advanced sensors and alert systems, the company helps maintain high security within prison perimeters, preventing illegal activities.
For stadiums and large public events, DroneShield provides security against drones that could cause disruptions or safety issues. Their solutions offer comprehensive monitoring and quick response capabilities to manage any unauthorised drone activity effectively.
Finally, corporations use DroneShield’s technology to safeguard against drones that could threaten cybersecurity and property, detecting potential threats for organisations.
A healthy pipeline
The company’s impressive revenue trajectory, meanwhile, reflects its success.
Since 2019, DRO has experienced a remarkable revenue growth rate of about 100% annually, with a staggering 230% increase over the past year.
As of March 31, its sales pipeline for 2024 is valued at $375 million, with an additional $145 million in projects lined up for 2025 and beyond.
This rapid growth has prompted DRO to expand its operations significantly, relocating its headquarters to a larger facility in Pyrmont, Sydney.
This new space supports advanced research and development, engineering, and manufacturing, with plans to increase its workforce from 140 to 170 by the end of 2024.
“DRO is well funded to support current sales pipeline,” said the note from Sequoia.
“DRO has recently completed a fully underwritten two-tranche Placement of $100 million. In addition to this, the company has conducted a Share Purchase Plan (SPP) totalling $15 million.”
Looking ahead, Sequoia believes the outlook for DroneShield looks robust.
The market for defence technologies is expanding due to increasing global conflicts and rising defence budgets, with asymmetric warfare and counter-drone solutions among the fastest-growing segments.
“DRO’s suite of products cater to a wide range of sectors,” said Sequoia.
“This diversifies its risk across industries, reducing reliance on any single market, whilst expanding its market reach, enabling access to diverse customer bases and fostering potential for sales and revenue growth.”
DRO Price at posting:
$1.55 Sentiment: Hold Disclosure: Held
RO), spotlighting the company’s potential amid a rapidly evolving market for counter-drone technology.
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